Global currencies and currency exchange traded funds (ETFs) are constantly shifting on the strengthens of one currency against another as market sentiment and long/short-term reversals occur on a daily basis. The market sentiment indicator for currencies can also be seen in the U.S. Dollar Index.
The U.S. Dollar Index is a futures index that represents the rates between the U.S. dollar and six major currencies, according to FX Trade Maker. There are two ways to play this index’s moves with ETFs:
- PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP)
- PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN)
The U.S. dollar has been pressured mightily this year, but it hasn’t necessarily been a bad thing. U.S. multi-national companies are profiting from exports on a weaker dollar, which should improve the U.S. trade balance and contribute to overall growth. The U.S. markets are bringing in more more foreign investments and greater demand for the dollar.
If international growth slows, people would liquidate riskier assets and demand for U.S. Treasuries will increase. The dollar would also benefit from its safe-haven status. The global worst-case scenario might not be so bad for the dollar, either. [6 Currency ETFs to Diversify from the Dollar.]
The fact is, there’s a lot of money floating around in the economy right now, which may keep the dollar weak for some time. There’s good and bad to both sides, though, so it’s important to see the benefits for what they are and invest accordingly.
For more information on the U.S. dollar, visit our U.S. dollar category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.